Soft drinks shift rocks Cott profits

By Chris Mercer

- Last updated on GMT

Related tags Cott United states North america

Profits tumbled by two thirds last year for the world's largest
supplier of private label soft drinks, Cott Corporation, as the
group struggled to cope with rising input costs and a consumer
shift to non-carbonated drinks.

Cott said net income fell from $78.3m in 2004 to $24.6m in 2005.

Around half of the drop was accounted for by a $37.5m one-off charge related to Cott's restructuring strategy in North America - brought on by rising costs and a disappointing performance from its North American drinks division.

The group said its gross margins also fell three per cent to 14.2 per cent due to higher commodity and fixed costs, as well as a shift in product mix as consumers increasingly bought bottled water instead of fizzy soft drinks.

The fall highlights the tough environment faced by soft drinks firms as they run to catch up with increasingly health-conscious consumers.

Cott warned back in September that profits would be hit badly, and the firm issued a further warning that restructuring costs would likely send 2006 profits down even further.

The group recently announced it would close its Ohio factory in the US this March, with the loss of 70 jobs.

John Sheppard, Cott president, said 2005 had been a challenging year, but assured investors the realignment strategy would help the company come good again.

"We are pursuing a number of specific initiatives including a disciplined and strategic approach to pricing, sourcing and supply chain efficiencies, improved water profitability, and increased penetration in non-carbonated beverage segments such as isotonics, enhanced beverages and juice-based drinks."

He added the firm expected to "make significant progress in these areas during 2006 and to realise their full-year benefit beginning in 2007"​.

Higher prices helped Cott's North American sales to rise three per cent in total last year, though they dipped one per cent in the fourth quarter.

Sales outside of North America are, however, largely still rising. Cott's sales rose 11 per cent in Europe, if the pending take over of Macaw in the UK is excluded, while international sales as a whole were up 17 per cent largely thanks to strong growth in Mexico. Total sales rose seven per cent to $1.76bn.

The group's problems this year now place even greater importance on its planned takeover of UK rival Macaw, currently under investigation by British competition authorities.

The deal, worth £75.7m, would give Cott a first inroad into aseptic drinks production, a fast-emerging technique among soft drinks producers because of its ability to satisfy growing consumer demand for non-carbonated and healthier products.

Related topics Manufacturers Soft Drinks & Water

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